SLC Agricola - one of Brazil's bigggest farm operators, with
sowings of 344,000 hectares - cut its production hopes for soybeans and
first-crop corn citing below-average rains in the north eastern states of Bahia
and Piaui, and the central state of Goias over the first three months of the
year.

The problem was particularly acute in January, when rainfall
fell two-thirds to 49mm in Bahia, and by 75% to 59mm in Goias, a drought which "compromised
the potential yield initially estimated, especially in the younger areas"-
farms which have been under cultivation for less than three years.

"The scarce rainfall affected yields," SLC said.

First crop vs second

The group cut by 0.15 tonnes per hectare to 3.09 tonnes per
hectare, its forecast for its yield in soybeans a downgrade which, given that
it planted the crop over 185,000 hectares, could be worth some 25,000 tonnes in
production terms.

It also cut by 1.63 tonnes per hectare, to 9.15 tonnes per
hectare, its forecast for its yield of first- crop corn, sown over 13,600
hectares.

However, SLC said that its second crop corn, sown between
January and mid-March – and in farms in states such as Mato Grosso which have
received better rains - had a "high yield potential", with an estimated result of
6.54 tonnes per hectare.

Official estimates

The forecast follows a trim on Thursday by Conab, the
official crop bureau, of 200,000 tonnes to 43.7m tonnes in its estimate for
Brazilian production of second-crop corn in 2013-14, compared with a forecast
made a month ago.

However, the downgrade reflected a reduced estimate for
plantings, down 130,000 hectares at 8.71m hectares - as producers switched from
corn to "more profitable alternatives" - rather than a drop in yields, for
which potential was nudged higher to 5.02 tonnes per hectare.

Conab lifted by nearly 500,000 tonnes, to 86.6m tonnes, its
forecast for Brazil's soybean production, also reflecting better yield hopes, largely
in southerly states such as Parana and Rio Grande do Sul.

Earnings ease

SLC's comments came as it unveiled a 5.0% drop to R44.1m in
earnings for the January-to-March quarter.

Revenues soared 37% to R$350.8m in revenues, lifted by extra
volumes, and by an upgrade to the accounting figure for soybeans.

However, expenses grew too, swollen "by the higher cost of
seeds, fertilizers and chemicals, which is explained by the depreciation in the
Brazilian real against the US dollar, and by inflation," SLC said.

Market reaction

The results were termed "better than expected" by analysts
at Itau BBA, which restated an "outperform" rating on SLC Agricola shares, with
a price target of R$30.00.

With the stock closing on Thursday at R$18.05, its discount
to the group's net asset value, which SLC pegged at R$35.1 per share, was "unjustifiable,
even considering the worst possibility of the company's capital allocation", Itau
BBA analyst Giovana Aruajo said.

At Bradesco, Gabriel Vaz de Lima suggested that a fresh
appraisal, expected by the end of the July-to-September quarter, of the value
of SLC's land portfolio "could be a trigger" for a higher price.

Bradesco restated its "outperform" rating on SLC shares,
which it termed "cheap", with a price target of R$26.00.